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The majors are mixed today across the board as investors continue to trade around the Japanese Yen, after some choice commentary by Japanese Finance Minister Taro Aso. Saying that foreign bond purchases were off the table, Mr. Aso has offered some inherently hawkish commentary that has provoked traders into taking profits in their long xxxJPY (AUDJPY, EURJPY, USDJPY, etc.) positions. Put simply: if the Bank of Japan is limiting its easing options, the Yen has room for a short-term recovery.

Outside of the Yen, however, the rest of the field has shaken out to be anything but typical. Both the commodity currencies and the European currencies are dislodged, with no clear schism: two of the more dramatic strugglers, the Australian Dollar and the British Pound, are appreciating on the day; while the Euro and the New Zealand Dollar, two of the year’s strongest major currencies, have fallen back.

The Australian Dollar is of interest considering that the Reserve Bank of Australia’s February meeting Minutes, released earlier today, were very much of the dovish variety. Citing the dampened inflation outlook, RBA policymakers believed economic conditions “would afford scope to ease policy further, should that be necessary to support demand.” It is likely that traders are taking profits rather than establishing new long positions; although minor short-term data releases have been better on the whole.

The British Pound, on the other hand, is merely seeing a technical bounce, rising from a seven-month low against the U.S. Dollar, as market participants position themselves for tomorrow’s labor market data drop, as well as the Bank of England February meeting Minutes. Considering that data has gotten worse in the interim reporting periods, a Sterling rally is not surprising, nor should it be ruled out.

Taking a look at European credit, peripheral yields trimmed yesterday’s losses, providing support for the Euro despite its declines on Tuesday. The Italian 2-year note yield has decreased to 1.551% (-1.8-bps) while the Spanish 2-year note yield has decreased to 2.484% (-3.2-bps). Similarly, the Italian 10-year note yield has decreased to 4.378% (-1.5-bps) while the Spanish 10-year note yield has decreased to 5.181% (-3.1-bps); lower yields imply higher prices.

EURUSD: Maintaining the same bias as the move to 1.3280/300 has yet to be completed: “Price has steadied below 1.3400, entering the Bull Flag range set in mid-January, from 1.3280 to 1.3390. On lower-term timeframes, a Bear Flag may have formed, with the measured move pointing to 1.3280/300. A break lower can’t be ruled out, but as long as the ascending trendline off of the mid-December and early-January lows holds at 1.3215/35, any setbacks are seen as near-term corrections.”

GBPUSD: The pair has fallen further after BoE policymaker Martin Weale said that a weaker Sterling helps exporters; seemingly, he has no problem with the Sterling weakening. Enter another participant in the ‘currency war.’But with the 4H and daily timeframes starting to look oversold, a rally back into 1.5750/800 shouldn’t be ruled out before a move towards 1.5265/70, the June low. Resistance comes in at 1.5570/80 (monthly S1) and 1.5675. Support is 1.5480/500 and 1.5380.

AUDUSD:Tuesday I said: “The bounce from the 1.0265/90 area may have completed, with the rally halted at the 200-DMA at 1.0305/10. The pair is sitting at the 100% extension at 1.0265 now, and a break implies a deeper setback towards 1.0135/75, early-September and –October swing lows, as well as the 161.8% extension.” Although there was an overshoot into 1.0360, former support, failure has occurred, signaling further downside is possible. Price has struggled further to overcome this level. I’m still looking for a move into 1.0135/75.

S&P 500: Tuesday I said: “as indicated on the charts the past weeks, noting “nearing the top 1505/1512” – the top was 1504.6. If this breaks, 1520 is in sight.” Indeed, the irrational exuberance has continued, bringing topline Bearish Rising Wedge resistance in focus at 1520; the December 2007 highs of 1520/24 could be reached on an overshoot. The 100% Fibonacci extension on the fiscal cliff rally and flag comes in at 1530. Bottom line: I’m expecting a significant setback (-10%) in the S&P 500 unless volumes accelerate rapidly, given the disconnect from reality.

GOLD: Gold broke below trendline support off of the January 2011 and May 2012 lows at 1650 last week, prompting a sharp sell-off into 1600, where price broke out in mid-August before a rally into the post-QE3 high at 1785/1805. However, with oversold conditions persisting on the 4H and daily timeframes, a rebound should not be ruled out; each of the past two daily RSI oversold readings has produced a rally in short order. Resistance is 1625 and 1645/50. Support is 1585 and 1555/60.

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